Preparing for Payment Reform

With mounting pressure to curb the cost of health care, large medical groups need to prepare themselves for oncoming payment reform. Policymakers have been experimenting with different models, resulting in the CMS Pioneer Accountable Care Organization (ACO) Model and the Medicare Shared Savings Program (MSSP). Providers are now being asked to maintain tight budgets, deliver high-quality care, and manage risk under these new models. In the 1990s, many medical groups signed risk-based contracts for global capitation arrangements under which they received fixed per-member, per-month payments. Many of them were unable to manage the risk and suffered heavy losses. In the 2000s, these groups shed their capitation contracts and returned to fee-for-service arrangements, leaving them inexperienced in managing cost and quality under risk-based contracts similar to those of ACOs and the MSSP. Mechanic and Zinner1 surveyed 21 large multispecialty groups to assess their preparedness for assuming risk and published the results in a recent issue of Health Affairs. Nearly two-thirds of the groups surveyed employed more than 440 physicians, representing about 16% of the country’s large medical groups and spanning 14 states and 19 metropolitan regions. Survey participants were divided into two categories, based on their payment arrangements: risk-based contracts and fee-for-service reimbursement. Mechanic and Zinner defined risk-based contracts as payment based on full or partial capitation, as well as shared-risk and shared-savings methods. Payment Mix On average, 57% of 2010 patient revenue for surveyed groups came from commercial insurers; 32%, from Medicare; 7%, from Medicaid; and 4%, from other sources. Fee-for-service payments represented about 65% of that revenue, global and partial capitation accounted for roughly 30%, and shared risk and savings accounted for less than 5%. Fee for service was the dominant form of payment, but more than half of the groups received 45% or more of their revenue from some form of risk-sharing model.

Table. Payment Mix for Survey Participants, 2010¹

While fee-for-service arrangements remain popular, government initiatives have slowly pushed groups toward risk-based arrangements. The surveyed groups predicted that their fee-for-service revenues would decline—a loss for which they would be compensated by increased revenue from shared-savings programs, pay-for-performance contracts, and global capitation. Executives interviewed for the survey expected the market to move away from fee-for-service payment, and they predicted that the largest immediate change would be an expansion of shared-savings arrangements, reflecting the influence of the MSSP and the growing prevalence of private payors offering such arrangements. Groups for which fee-for service payment is dominant largely based physician compensation on productivity. Risk-based groups were divided in their compensation models. Five of the risk-based groups paid 80% or more of physician compensation as salary, and the other five groups paid 80% or more of compensation based on productivity. According to Mechanic and Zinner, limited steps were taken to compensate physicians based on objective measures of quality, patient satisfaction, or efficiency. Over half of all groups, including 75% of fee-for-service groups, predicted that they would make changes to physicians’ compensation within the next two years to align incentives with these new contracts. Information Management All of the risk-based groups reported full implementation of system-wide electronic data warehouses and analytics software for performance measurement, and two-thirds of them had developed patient registries. In comparison, only 10% of fee-for-service groups had fully developed these capabilities. The biggest concern for risk-based groups is the expansion of their analytics and evaluation procedures. Risk-based groups implemented more information-management solutions, compared with fee-for-service groups, because of the greater difficulty of managing risk-based contracts. According to Mechanic and Zinner, many groups with limited risk-contracting experience lack the data/ analytics infrastructure necessary to manage these contracts effectively. Some health plans are developing collaborative tools to help providers succeed under such contracts, but it is not a widespread effort. Performance measures will be an invaluable tool, moving forward, and cooperation between providers and payors is necessary to make these models work. All but two groups in the survey employed formal methods of operational management, such as lean production or Six Sigma™. Most groups had taken measures to reduce avoidable hospital admissions and readmissions, but a much higher percentage of risk-based groups than fee-for-service groups reported efforts to reduce network leakage (referrals outside the network). Risk-based groups were more likely than fee-for-service groups to hold preferred relationships with reliable specialists and hospitals because of accountability concerns. According to the survey, risk-based groups had also implemented management programs for high-risk patients at nearly double the rate of fee-for-service groups. Both groups reported little progress in patient-engagement initiatives. Conclusion The research suggests that there are three key components of success with new payment models: information systems that track performance and provide steady support, physician-compensation incentives that align with organizational goals, and an organizational commitment to improving performance. Payment reform alone will not bring about this change. Mechanic and Zinner conclude that policymakers, payors, and providers need to work together to establish accountable care. It can only happen with sound leadership, reliable information, and targeted investments in performance-improvement infrastructure.